Major Loss for NZ’s Largest Private Medical Laboratory Amid Workforce Strain and Funding Issues

New Zealand’s largest privately-owned medical laboratory, Awanui, has reported a $16 million loss for the last fiscal year, a significant downturn from the $13 million profit it recorded the previous year.

This financial setback comes after warnings from the staff to the health minister last month, stating that the workforce is at a breaking point, which could potentially endanger patients’ lives.

The Crown allocated $339 million to private pathology providers in the 2022-23 fiscal year, out of a total of $617 million, which includes publicly provided diagnostic pathology services.

Awanui operates lab services in more than a dozen regions and cities, but its revenues have been declining amid ongoing industrial disputes. Despite this, the company maintains that it remains financially solvent with a strong balance sheet and net assets, and it has the full backing of its board and investors.

“General cost inflation and higher interest rates are impacting all New Zealand businesses,” Awanui stated. “Furthermore, the labour rate increases we have paid to our people are significantly higher than historical rates of growth, and we have not received funding from Health New Zealand which matches or covers the increases.”

After settling months of industrial action with a pay deal in February that resulted in a 5.5 percent wage increase and a $3000 bonus for staff, Awanui continues to navigate financial pressures.

Te Whatu Ora, Health New Zealand, has assured staff that it is working with Awanui to address the issues raised in their letter to Health Minister Shane Reti. However, the agency has expressed no concerns about Awanui meeting patient needs. “The performance of our contracted laboratories is fulfilling our expectations, and there are no concerns about them meeting the needs of our patients, which is always our first priority,” said spokesperson Tim Wood.

In a letter to staff in late May, Te Whatu Ora mentioned reviewing the commissioning arrangements for laboratory services in Aotearoa over the coming year and considering the performance issues raised by staff. However, Wood clarified that there is no current commissioning review of laboratory services underway.

Several Awanui contracts were due to expire, and Health NZ is in confidential negotiations with various laboratory service providers. Awanui has confirmed it is in talks with Health NZ to ensure laboratory service contracts are adequately funded to maintain financial sustainability.

“We are aware and acknowledge the impact of the difficult environment for us and the sector more broadly, and our staff are telling us the same,” Awanui said.

Financial results show a decline in revenue from $385 million two years ago to $316 million in the year ending December 2023, with profit turning into a loss. Additionally, no dividends were paid out compared to the $40 million dividend for the 2021 financial year.

The pay equity deal for public lab workers has exacerbated a pay divide, which Health NZ has been investigating. In a letter to Awanui staff, Te Whatu Ora stated: “Once we have a complete understanding of this, consideration can be given to next steps that can be taken in a fiscally constrained operating environment.”

Nineteen staff members signed a letter to Health Minister Shane Reti, highlighting that the Awanui laboratory workforce is stretched to breaking point. They reported that work from some sites is being sent away due to a lack of trained staff, which is inefficient and puts patient samples and potentially patient lives at risk. They also cited old machines breaking down with no back-up.

Te Whatu Ora responded, stating that they are actively working with Awanui to review their improvement plans and monitor progress in addressing these issues. “Health New Zealand continues to hold Awanui to account for their performance and meeting key performance indicators in the contracts,” the letter said.

Reti’s office declined to comment on Awanui’s financials as it is a private company but confirmed that Health New Zealand continues to work closely with Awanui on the health services they provide across the country.

Former Institute of Medical Laboratory Science president Terry Taylor emphasized the need for a new model for allocating the $600 million spent on lab services. “What’s the best spend for that, with the current situation we have in this country, to shore up all the bits and pieces that are just not functioning the way they should be at the moment?” Taylor asked. “We marched to Parliament in 2022, warning the system was close to breaking. We’re starting to see the creaks and the groans now, so the time is now. If you don’t have a pathology service, you do not have a health system.” TIN Bureau